SpaceX Shines Amid Sagging Market, So I’m Snagging Some Shares
Here’s how and why I’m picking up some Space Exploration Technologies and tracking the stock closely.
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It is ugly out there for the third-straight session as investors react negatively to the producer price index report and oil continues to move higher. There is also growing nervousness about Friday’s CPI report and that is weighing on bonds. The 20+ Year Treasury Bond Fund (TLT) had undercut recent lows and is near its lowest point since it started trading back in 2002.
Breadth is running around 33% positive and we have about 3 times as many new lows than new highs. Apple (AAPL) is one of the few bright spots after the introduction of its foldable phone and pharmaceuticals are seeing some interest as a potential safe haven.
I have little interest in putting capital to work, but I did start a small position in a very well-known name that has shown good price action. Space Exploration Technologies (SPCX) is now a new position in client accounts at Hammerhead Financial.
What pushed me to buy it is that it is trading in much the same way Meta Platforms (META) did after its 2012 debut, back when it was still called Facebook. It broke its offering price within days and spent the summer being sold by people who had a schedule of lockup expirations in front of them.
Facebook had traded under $18 in September after a $38 offering, and it took until the following August to get back to the offering price. Once it recovered the IPO price, the multi-year trend began. Situations like this are never the same, but it has some similar elements and I look the recent price action. There has been quite a bit of concern about lockups, but the stock is digesting supply quite well.
The Business Underneath
SpaceX builds and flies rockets, sells satellite internet service to homes, ships and planes under the Starlink name, and rents out computing power to companies training artificial intelligence models. It came public on June 12 at $135, ran to $225.64 four days later, and was under $105 by the first week of August. Nothing about the business changed in those seven weeks.
When it finally did report, on Aug. 4, revenue was up 92% from a year ago. Satellite internet brought in $4.3 billion of that, the AI segment $2.6 billion and growing 247%, and the rocket business $962 million. Starlink finished the quarter with 12 million subscribers, double the year before. The rocket company now collects about an eighth of its money from rockets.
The bulls and bears have been arguing over the value of the reusable Starship, which is one of the smallest segments of the SpaceX business. It is the subscription internet business with 12 million paying customers and a compute rental business that more than tripled that is already booming. Facebook had the same problem in 2012, when the argument was about desktop advertising and the money turned out to be in mobile ads.
Why It Has Been Sold
Only about 5% of the company’s shares were sold in June. Everyone knew more shares were coming. The stock also listed into a space sector that had already started to weaken, and most space stocks were cut in half when SPCX hit the market. So there was a combination of a falling stock, a broken sector, and a well-known quantity of insider sellers.
What the Unlocks Have Shown
On Aug. 6, 911.5 million shares became sellable, more than the entire IPO. The stock closed up about 6% that day off a low near $105, on the heaviest volume in its short life. On August 20, another 319 million came free and it fell 4%, then recovered the next session. On September 9, another 319 million, the same 4% drop, and it was green again yesterday even as 59 million affiliate shares became eligible.
Facebook did this too. Its largest release, about 800 million shares in November 2012, was supposed to be the one that finished the stock. It closed up 12.6% that day and never traded that low again.
Somebody is taking the SpaceX supply at rising prices and is not in a hurry about it. I am not predicting an immediate major uptrend. I view it as the place I find out. If one of the coming unlock dates cuts through it on heavy volume, the sellers were pacing themselves and I had the wrong idea about who was on the other side. The way the stock is acting makes me think there may be some fear of missing out building when the unlocks don’t pressure the stock.
How I Am Trading It
I bought a small starter position and put it on my screen so I can follow it closely and trade it aggressively. Unlock dates are scheduled selloffs in a stock that has a bid underneath it, and that is a friendly arrangement for an active trader. About 328 million shares come free on Sept. 24. The bigger one is Dec. 8, when the full 180-day lockup lifts and roughly 798 million more shares are released. That is the last large supply event of the year and the one that will be a major catalyst.
At the time of publication, DePorre was long SPCX.
